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New interest abatement rules.

Taxpayers no longer have to pay interest for certain past-due tax liabilities when the IRS is responsible for unreasonable errors or delays while a case is being processed. Thanks to recently released proposed regulations (Reg-209276-87) under Internal Revenue Code section 6404(e)(1), the IRS will abate interest resulting from delays that occur while IRS staff performs managerial or "ministerial" acts.

Case scenarios

For ministerial acts--procedural acts that do not involve the exercise of judgment--interest could be abated when an IRS employee provides a taxpayer with an incorrect tax liability due and the taxpayer pays less than the full amount owed the IRS. The IRS also would abate interest when a case is delayed while being transferred to a different IRS district, or when a deficiency notice is delayed after the taxpayer and the IRS have identified all issues in a particular case.

Delays in managerial acts--administrative acts that occur during the processing of a taxpayer's case--to which the new regulations apply include the loss of records and the exercise of judgment or discretion relating to the management of personnel. For example, during the course of an audit a revenue agent might request technical advice from the Office of Chief Counsel. The attorney assigned to the case could be granted extended leave and the case might not be reassigned during the attorney's absence.

Other managerial acts which could cause delays and for which the IRS now may stop the accrual of interest include the following:

* Agents are sent to training courses for extended periods of time.

* Auditors are permanently reassigned.

* Agents are granted extended periods of sick leave.

* Clerical employees misplace taxpayer files.

Observation: Interest that results from a general administrative decision, such as how to organize the processing of tax returns or how and when to implement an improved computer system, cannot be abated. Nor will interest be abated

* When a tax shelter case is delayed until an examination of the shelter is complete.

* When a taxpayer and an agent disagree about certain itemized deductions and the agent needs the advice of the Office of Chief Counsel.

* When a decision is made to delay examining a taxpayer's return until another return, for which the statute of limitations is about to expire, is processed.

* When an error is made in interpreting a complex federal tax law.

The Tax Court also has jurisdiction to determine whether the IRS has abused its discretion in failing to abate interest for an eligible taxpayer (IRC section 6404(g)). Formerly, federal courts had no jurisdiction to review the IRS's failure to abate interest.

--Michael Lynch, CPA, Esq., associate professor of tax accounting at Bryant College, Smithfield, Rhode Island.
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Article Details
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Title Annotation:IRS regulations
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Apr 1, 1998
Words:443
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